Correlation Between BW Offshore and Medical Properties

Can any of the company-specific risk be diversified away by investing in both BW Offshore and Medical Properties at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BW Offshore and Medical Properties into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BW Offshore and Medical Properties Trust, you can compare the effects of market volatilities on BW Offshore and Medical Properties and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BW Offshore with a short position of Medical Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and Medical Properties.

Diversification Opportunities for BW Offshore and Medical Properties

-0.05

Correlation Coefficient

BW Offshore  Medical Properties

Good diversification

The 3 months correlation between 0RKH and Medical is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Medical Properties Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Properties Trust and BW Offshore is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BW Offshore are associated (or correlated) with Medical Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Properties Trust has no effect on the direction of BW Offshore i.e., BW Offshore and Medical Properties go up and down completely randomly.

Pair Corralation between BW Offshore and Medical Properties

Assuming the 90 days trading horizon BW Offshore is expected to generate 7.51 times less return on investment than Medical Properties. But when comparing it to its historical volatility, BW Offshore is 1.39 times less risky than Medical Properties. It trades about 0.04 of its potential returns per unit of risk. Medical Properties Trust is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  362.00  in Medical Properties Trust on December 30, 2024 and sell it today you would earn a total of  240.00  from holding Medical Properties Trust or generate 66.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BW Offshore  vs.  Medical Properties Trust

BW Offshore

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BW Offshore may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Medical Properties Trust

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Medical Properties Trust are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Medical Properties unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BW Offshore and Medical Properties

The main advantage of trading using opposite BW Offshore and Medical Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Offshore position performs unexpectedly, Medical Properties can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Medical Properties will offset losses from the drop in Medical Properties' long position.

The idea behind BW Offshore and Medical Properties Trust pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.